Enron, auditing, tax shelters, and American political scandals in general
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(From 'Enron Fries in it's own Juices' - The Texas Observer):
<http://www.texasobserver.org/showArticle.asp?ArticleFileName=011207_aw.htm>
>>> Enron's influence buying trail:
With virtually all of its activities subject to government regulation, Enron understood better than its competitors the value of political influence. To manipulate politicians in Houston, Austin, Washington, and foreign capitals, Enron made huge political contributions (including $2.5 million in federal contributions since 1999) and ushered a steady stream of government officials through its revolving door.
>>> Enron: 'Largest Single Patron of George W. Bush's Political Career.
By 1999, according to the Center for Public Integrity, Enron had become the single largest patron of George W. Bush’s political career (Bush has received $674,100 from Enron). Although Bush denies that he ever lobbied for Enron (an Argentine cabinet member said Bush lobbied him to give Enron a $300 million pipeline contract in 1988), Bush has championed Enron causes from Austin to Washington. Last May, then-Federal Energy Regulatory Commission Chair Curt Hebert said Enron Chair Ken Lay had warned him that he would lose Enron’s support at the White House if Hebert opposed open access to privately owned power lines. Lay said Hebert misconstrued their conversation, Hebert resigned, and Bush replaced him with Enron-backed Texas Public Utility Commissioner Pat Wood. Two months earlier, Governor Rick Perry (who has received $237,000 from Enron since 1997) appointed ex-Enron de Mexico President Mario Max Yzaguirre to an open Public Utility Commission seat.
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(Extracted from a brief history of American political scandals):
<http://www.prospect.org/print/V13/4/wilentz-s.html>
... The deregulating, go-go Reagan-Bush years were different. A new pattern of heavily deregulated industries brought with it new and bigger scandals. In the Wedtech affair of 1986-1989, bribes from a military contractor led to the conviction of two members of Congress and many less prominent figures on charges ranging from racketeering to perjury. Even more memorable was the monumental savings-and-loan crisis of the late 1980s -- a direct result of such vast and aggressive deregulation of the nation's savings institutions that S&L operators like the notorious Charles Keating were able to lend themselves money. With total government bailouts amounting to an estimated $1.4 trillion, the S&L scandal may well be the largest single theft in world history.
... The Enron affair, however, is the real thing. Little more than a pipeline company in the 1980s, the Enron Corporation flourished in a new postindustrial economy, growing immense in the 1990s by evading the checks and balances built for another age. Like the S&L crisis, the Enron affair is a direct product of deregulation -- not so much from the Reagan-Bush years but from the period of Republican congressional control under Newt Gingrich after 1994. With Gingrich as their fire-eater, congressional Republicans and their K Street bankrollers mounted huge resistance to the regulatory efforts of the Clinton administration, as well as to the existing regulatory rule-books. Kenneth Lay and Enron lobbyists were particularly aggressive. They sought to gain political influence, largely with Republicans in Texas and in Washington, D.C., in order to alter regulations and gain exemptions so that Enron could operate in a completely deregulated zone.
"Deregulation" and "free market" were mantras for both the Gingrich Republicans and Enron. But their talk of freedom was highly misleading. The Gingrich Republicans were not interested in creating some fanciful, pristine, abstract "free market." ...Rather, through intensive government efforts, they sought to create new market rules that were favorable to Enron and a host of other influential corporations. The so-called free market that resulted was no state of nature. It was a highly-crafted artifice, coolly manufactured on K Street and on Capitol Hill by the Republican Congress -- and in Enron's case, with the help of Kenneth Lay's close friend, the new governor of Texas, George W. Bush.
Only one force stood between the Gingrich Republicans and total success: the Clinton White House and the Democrats. Clinton, to be sure, recognized the need to reform old regulatory rules and other laws in accordance with changed economic realities. And the Democrats had plenty of their own connections to K Street. But Clinton and the vast majority of his party also realized that radical deregulation of the sort Gingrich advocated could spell disaster. And now, in the Enron crisis, the disaster has unfolded.
>>> 401k reform neutered:
Consider, first, the Enron employees and stockholders, who are the scheme's most obvious victims. In 1997, California Democrat Barbara Boxer pushed a Senate bill restricting 401(k) retirement accounts that would have prevented or at least mitigated the disaster that hit Enron's innocent holders. But that would have been regulation; so the Republican free-marketeers and business lobbyists watered down the bill to the point where it protected almost nobody.
>>> Auditing reform aborted:
Second, consider Enron's shenanigans with its auditing firm, Arthur Andersen. In the late 1990s, then-SEC Chairman Arthur Levitt, Jr., tried to banish such cozy connections between auditors and the companies they audited. But that would have been regulation; so the accounting lobby defeated Levitt's efforts. And the current President Bush did the lobbyists one better: He appointed the leader of the anti-Levitt effort, Andersen lawyer Harvey Pitt, as Levitt's successor at the SEC.
>>> Offshore tax shelters defended:
Third, consider the matter of tax shelters, such as the labyrinth of offshore hideouts where Enron placed about one-third of its assets in order to conceal its losses. President Clinton's treasury secretary, Lawrence Summers, tried to put a stop to that practice, but that would have been regulation; so congressional Republicans beat him back. Current Treasury Secretary O'Neill has obstructed even modest efforts by intergovernmental agencies to monitor the tax-shelter scams.
>>> Derivatives escape regulation:
Fourth, consider the energy-derivative schemes -- obscure financial arrangements so new that they escaped regulation completely. In 1997, Clinton administration officials proposed more-exacting disclosure of energy derivatives. But again, that would have been regulation; and so Enron, with the help of congressional Republicans led by House Financial Services Committee Chairman Jim Leach of Iowa, put a stop to the reformist nonsense.
Measured strictly in dollar amounts, Enron might seem to be a smaller scandal than the savings-and-loan collapse. But in terms of public pain and political fallout, its impact could be much greater. The federal government did, after all, eventually bail out the S&Ls, making up for the fraud with taxpayers' dollars -- although the delay in its response vastly increased the damage to the federal treasury. By contrast, there seems to be, as yet, no way for the defrauded Enron investors -- including the hundreds of employees with now worthless 401(k) plans -- to recover their life savings from Kenneth Lay, Jeffrey Skilling, and the other Enron executives who looted the firm.
Politically, the Enron fallout is potentially far more damaging than that generated by the S&L controversy that preceded it. The savings-and-loan crisis implicated some on Capitol Hill, most famously Alan Cranston, John McCain, and the other senators who had had links to the fabulously corrupt S&L owner Charles Keating. But Enron raises even deeper and more disturbing political issues than the standard scandal story-lines about who paid what to whom for what.
George W. Bush campaigned for the presidency largely on the character issue, as though character were purely a personal matter. But character is not just personal. Regardless of whether Bush himself is unblemished in the usual way of taking bribes or pushing graft, the Enron scandal testifies to the character of his politics and beliefs. It also testifies to those of the modern Republican Party.
Enron shows us what happens when tiny groups of corporate special interests manipulate government to their own benefit; when matters of corporate governance are left entirely to the corporations; and when a company's treatment of its employees is considered a purely private matter.
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